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A Momentous September: The Price Discovery Mechanism Is Also Moving From West To East With The Metals

August 26, 2014
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The Shanghai Gold Exchange will be opening up bullion trading to international investors on September 26. China is striving hard to internationalize their currency, and as well, remove the pricing privilege in markets which the West has monopolized so far. This is a very bold move, and part of their larger plan to make China a bullion-trading hub.Since their objective is also to internationalize the Yuan, trading will be settled in Yuan and not dollars, which of course, is another small nail in the dollar coffin. The exchange will be serviced by a 1,500 metric ton vault, which is very impressive, indeed.
As if that wasn’t big enough, the Singapore Exchange Ltd. (SGX) will also be opening up a 25 KG kilobar contract to be traded.
These Asian trading platforms will not be as opaque as Western platforms, and will be physically backed, so we believe that this will indeed be the future of international precious metals trading.This is concrete proof that not only is the West’s gold and silver moving East; their ability to manage prices is also slipping right from under their eyes.
September is shaping up to be a very eventful and historic month, even if we do not see any great changes in price action.

As I have been pointing out in our blogs this week; although we are all believers in the fundamentals underpinning the precious metals story, things are not looking as great for the metals right now as we would like, short term. Although this could turn around with more Autumn Asian demand, the limbo from the continual “We will” and “We won’t raise interest rates” yo-yo the Fed is keeping markets in is causing too much uncertainty for gold to take off. This is compounded by the back and forth of good and bad news from government reports.

With oil and the commodities sector in general tanking along with the dollar making steady gains, it is very hard for Western speculators to want to hold on to an asset which, in their words, does not offer ‘yield.’ Unfortunately, this is the perspective of most Western speculative traders, and although they have become suspicious of the whole recovery story, they are still buying into it to enough of a degree that they will not exit the markets.

Money managers are, in a way, forced to stay in the markets. How would they explain to their clients that they exited when the Fed’s hot money keeps stocks going up? We hope though, that with the 2014 gains made in the mining equities, that this will help them reconsider their position towards the metals.

The great news is that the Shanghai Gold Exchange will be opening up bullion trading to international investors on September 26. China is striving hard to internationalize their currency, and as well, remove the pricing privilege in markets which the West has monopolized so far. This is a very bold move, and part of their larger plan to make China a bullion-trading hub.

Since their objective is also to internationalize the Yuan, trading will be settled in Yuan and not dollars, which of course, is another small nail in the dollar coffin. The exchange will be serviced by a 1,500 metric ton vault, which is very impressive, indeed.

As if that wasn’t big enough, the Singapore Exchange Ltd. (SGX) will also be opening up a 25 KG kilobar contract to be traded. Although its opening time is not as specific as the Shanghai Gold Exchange, Bloomberg is reporting that this “may begin as soon as September.”

The SGX will have no price limits, and since the Singapore government has removed a 7% goods and services tax on investment-grade precious metals, the Singapore Exchange trading platform will, like Shanghai, be enticing to international investors. The only thing we don’t know about is how fast international traders and retailers will catch on to these two new platforms and pricing mechanisms.

What we do know is that they will not be as opaque as Western platforms, and will be physically backed, so we believe that this will indeed be the future of international precious metals trading. Although this is big news and something under-reported in both the mainstream and alternative media, that doesn’t mean that the price of gold and silver will automatically take off after their conception. These types of stories take time to develop.

However, it is concrete proof that not only is the West’s gold and silver moving East; their ability to manage prices is also slipping right from under their eyes. September is shaping up to be a very eventful and historic month, even if we do not see any great changes in price action.

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